Employment Protection: The Case of Limited Enforceability

32 Pages Posted: 8 Jul 2008

See all articles by Florian Baumann

Florian Baumann

Johannes Gutenberg University Mainz - Department of Economic Theory

Date Written: July 3, 2008

Abstract

This paper shows that the effects of employment protection critically depend on its enforcement. For this purpose, we capture evasion of employment protection via market exit in a setting of monopolistic competition. We find that the number of firms entering the market depends on firing costs only in the case of imperfect enforcement of employment protection. Furthermore, the possibility to circumvent firing restrictions by exiting the market mitigates the adverse efficiency effects of employment protection and can reverse the sign of the change in employment associated with an increase in firing costs.

Keywords: employment protection, evasion, market entry and exit

JEL Classification: J63, J65, L13

Suggested Citation

Baumann, Florian, Employment Protection: The Case of Limited Enforceability (July 3, 2008). CESifo Working Paper Series No. 2346, Available at SSRN: https://ssrn.com/abstract=1156761 or http://dx.doi.org/10.2139/ssrn.1156761

Florian Baumann (Contact Author)

Johannes Gutenberg University Mainz - Department of Economic Theory ( email )

D 55099 Mainz
Germany

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